Tax Terms Dictionary

This could be the taxable profits made from the final sale of a qualified business stock or the monetary gain that is accumulated from the selling of valuable collectibles. If this gain is the profits from the sale of the qualified business stock then these shares need to have been owned for a time period of 5 years or more.

A 401(k) is a savings plan designed to be used towards the retirement of an individual. It is a plan based on a commitment arrangement between an employer and the employee. The worker is allowed to make specified allotments from their paycheck before taxes, contingent upon the alternatives that are offered in the agreement. The agreed upon allotted contributions go into the 401(k) account in light of alternatives given under that specific arrangement. In a few places, the business will likewise make contributions, for example, coordinating the representative's commitments up to a specific rate. There are also 401(k) plans that have a required employer contribution agreement and these are known as SIMPLE and Safe Harbor plans.

A 403(b) is a retirement plan similar to a 401(k) plan, but is offered by non-profit organizations such as universities, school districts, and some charitable organizations, instead of corporations. There are several advantages to 403(b) plans: contributions lower taxable income, larger contributions can be made to the account, earnings can grow tax-deferred, and some plans allow loans. 403(b) contributions can grow tax-deferred until withdrawal at which time the money is taxed as ordinary income. For those receiving W-2s, the 403(b) contributions are indicated in the W-2 itself. There is no need to enter 403(b) contributions separately as long as the W-2 is entered exactly as seen. Distributions from 403(b) plans are documented by form 1099-R for tax return purposes.

A 457(b) plan is a non-qualified tax-deferred compensation plan that works very much like other retirement plans such as the 403(b) and 401(k). Created in 1978, the name refers to the relevant section [457] in the Internal Revenue Code that governs the plan. Two main types of 457 plans exist: governmental and tax-exempt 457(b) plans.

The time period formulated by the educational institute for the measurement of academic duration. That may be a semester of 6 months, an annual term, a quarterly term, or any other period agreed upon by the institution. The payment period is considered to be an academic period if the institute applies credit hours or clock hours to consider the degree durations.

Since the Economic Recovery Tax Act of 1981, this is the system used to calculate depreciation for an income-generating asset or property that is utilized in periods of service before the year 1987 and after the year 1980. However, the Modified Accelerated Cost recovery System (MACRS) has replaced this system for any asset or property that has been utilized in service after the year 1986.

A method used by a company which calculates the depreciation of its fixed assets at a faster rate than would be permitted under the straight-line method of depreciation (definition listed below). Greater deductions are permitted in the earlier years of the assets useful lives. Taxpayers are allowed to discount 20 percent of the cost every year using the straight-line method of depreciation. Accelerated depreciation is a more time efficient strategy that gives you a chance to deduct 20 percent of the business costs the primary year, 32 percent the second year, 19.2 percent the third year, 11.52 percent in the fourth and fifth years, and the 5.8 percent remainder in the 6th year. Six years is the amount of time it takes to completely devalue the property, on account of the material "half-year" convention. This "half-year" convention fundamentally expects that business resources have been put into use by the middle of the year.

It is a method in which the earned incomes and the expenditures
are registered and reported, as opposed to when they are received or
paid. It is the opposite of the cash method and is also known as the
accrual basis.

If a taxpayer actually participates in the overseeing of the
operations of a certain trade, they may be allowed to actively manage it
under what is known as the section 179 deduction. Whereas, a person who
is an inactive investor does not participate actively in the trade.

It is the business management involvement over decisions such as
renting, rental terms and repairs made by the owners of property that
may qualify them for deductions (as much as $2500) of the passive losses
acquired from the renting of the property.

An IRS-approved method for computing and asserting expenses
incurred when utilizing a car for business functions. For this method,
the taxpayer needs to compile expenses such as fuels, repairs, parking
fees, tolls and even loan interest.

If you do not benefit from the full amount of the Child Tax
Credit, you may be eligible for the Additional Child Tax Credit. The
Additional Child Tax Credit is a refundable credit and may give you a
refund even if you do not owe any tax. For more information see IRS
Publication 972, Child Tax Credit at www.IRS.gov.

This is the calculated expenses the taxpayer made for their
qualified educational expenses after all scholarships, education
assistance and any other expense deductions they claimed on their return
as deductions have been factored in. Some examples of the reductions to
the calculated expenses are tax-free educational assistance,
employer-provided educational assistance and tax-free scholarships.

These adjustments are deductions that appear directly on the
taxpayer's tax return. These can be reported on federal forms 1040 and
can be used where the findings lessen the wages in
ascertaining the taxpayer's adjusted gross income for the reported
taxable year. This deduction is also called an above-the-line deduction
and can be used without having to itemize deductions.

You may be able to take a tax credit for qualifying expenses
paid to adopt an eligible child. This is a tax credit offered to
adoptive parents as an encouragement for adoption. It effectively
refunds you part of what you paid as "qualified adoption expenses" to
adopt the eligible child. In order to be eligible, the child must be a
minor (under the age of 19 at the end of the tax year) or unable to care
for themselves (mentally or physically). In the case of a special-needs
child, the qualified adopted parent may also qualify for a credit that
exceeds their adoption expenses. The right to the adoption credit is
highly dependent upon the taxpayers final AGI. For more information see
the instructions for IRS Form 8839, Qualified Adoption Expenses.

This is a temporary number issued by the Internal Revenue
Service (IRS) to provide identification for an adopted child in lieu of a
social security number. This temporary number can be used by the
qualified adopted parents as a way to identify the child on their
federal income tax return until the adoption process is completed or
until they can obtain the child's social security number

An employer is required to allocate tips when their employees
work in large food or beverage establishments. Allocated tips are the
tips that were assigned in addition to the tips that the taxpayer has
reported.

An income tax created that imposes an additional flat rate above
the exemption threshold to ensure that a minimum amount of tax be paid
by particular tax payers who benefit from the tax laws due to levels of
income that allows certain expenses, special credits and deductions.

When a tax return is accepted by the IRS but needs correction a
tax amendment needs to be filed using the Form 1040X (Amended Individual
Income Tax Return) which will be used by the IRS to correct errors that
have occurred on any previous returns up to a three-year period. This
can result in a higher tax liability or a different refunded amount
dependent upon the mistakes rectified.

If the amount the taxpayer paid on a bond is more than the face
value of the bond that excess amount is called the bond premium. The
bond premium can be tax deductible and reduced (amortized) on particular
types of bonds over the life span of that bond.

A fixed schedule arrangement using regular installment payments
in order to pay off a debt such as a car loan or a home mortgage. The
payments are regulated to cover intangible assets such as interest
balancing out against the payments made to cover the principle. This
displays amortization matching asset expenses with generated revenue.
Taxpayers, according to the IRS, can take deductions on particular
amortized expenses such as goodwill, sometimes a non-compete agreement,
researching costs, and mineral exploration along with mining costs.

This is the amount calculated following a sale or an exchange
referred to as a "realization event." This calculation realizes the gain
or loss resulting from the event in the form of fair compensation. It
does not consider any transaction fees or commissions but it does
include any liabilities assumed by the buyer and/or any liabilities to
which any property involved may be subject to.

It is an agreed-upon scheduled series of payments in the form of
a contractual financial product between an individual and a financial
institution. Annuities are arranged to accept and produce revenue from
an individual with the total sum of the revenue to be paid out regularly
at a later date.

A capital asset can be any type of property you own and use for
personal purposes, pleasure, or investment. If you purchased a capital
asset at one price and later sold it for a higher price, you have to pay
income tax on the gain you realized.

If you purchased a capital asset for investment purposes and
later sold it at a loss, you may deduct all or a portion of your capital
loss. You may not deduct any losses from a capital asset purchased for
personal use.

Individuals can only claim the loss that is equal to the
potential loss that can potentially be incurred. This is equal to the
amount of value of a particular activity that would be the cause of the
risked loss.

An audit is a process in which an individual proves his/her
expenditures and tax deductions to a review body formulated by IRS.
However, the majority of these audits are processed through mail and
they only require proof pertaining to a certain particular issue or
issues listed on the tax return.

An Authorized IRS e-file Provider is a professional tax service
that has been approved by the Internal Revenue Service and accepted into
their electronic online tax filing program. The IRS acknowledges online
e-filed tax returns from this approved organization. These
organizations have met the qualification criteria, and have passed a
suitability check so that the IRS can then relegate an Electronic Filing
Identification Number (EFIN). Candidates accepted by the IRS are fully
qualified to prepare, transmit and process e-filed tax returns are then
known as Authorized IRS e-file Providers. ezTaxReturn has been an
Authorized IRS e-File Provider dating back to 1999.

The expenditures incurred by using a car strictly for business
purposes are deducted in terms of being a business expense or as an
employee expense. For example, fuel, repairs, parking fees, toll taxes
or just the standardized mileage rate published by the IRS can all be
calculated as deductions.

Vehicles that are donated to charity bear some strict rules and
regulations in order to be claimed as a deduction. The final amount of
money that is collected after the sale of your donated vehicle by the
charity is what will be viable for a deduction. The charitable
organization to whom you have donated, should notify you within 30 days
of the selling day. If you do not receive the required sale information,
then the total deduction allowed for the vehicle donation will be set
to a $500 limit.

If an automobile is used for charity work then some of these
expenses can be deductible. 14 cents for every mile you drive using your
automobile can be deducted. Similarly, to the business use of a vehicle
mentioned above, parking fees as well as the tolls can also be also
reported as charitable deductions.

Bargain sale to charity is a process through which a donor can
sell real estate property to a charitable or non-profit organization for
a price that is less than the fair market value. The selling of this
property can serve the charity as support for their mission while also
serving as a valuable tax deduction for the donor.

This is the value of the goods registered in the onset of the
year that are made available and displayed for the purpose of being
sold. The producer includes the total amount of costs for all of the raw
materials, the works that are in process, the goods that are finished
and all the things that are utilized in the production of the
commodities as a segment of the initial inventory sum. The initial
inventory amount should be equal to the final inventory amount that was
reported for the preceding year.

Also known as an arm's-length transaction, a gift loan or a
demand loan, a below market loan is the kind of loan on which the viable
interest rate is actually less than the standardized applicable federal
tax rate. The IRS may require for tax purposes that the interest rate
be increased for the lender in accordance to the Applicable Federal Rate
(AFR).

It is a type of income which is not subject to U.S. taxation due
to the fact that the taxpayer is not able to exchange their foreign
currency into U.S. dollars. This would be due to the law governed by the
local foreign government or other local foreign policy. Special tax
rules and regulations can permit the taxpayer to get an extension on
reporting that particular part of their income for taxation.

If you are a bona fide resident residing in a permanent tax home
in a foreign country, then you qualify for the foreign earned income
exclusion provided you can prove that your physical presence was in fact
residing in the reported foreign country for one sustained tax year.

If the amount the taxpayer paid on a bond is more than the face
value of the bond, that excess amount is called the bond premium. A
portion of the bond premium can be tax deductible and reduced on
particular types of bonds every tax year over the life span of that
bond.

The term bonus depreciation refers to additional deductible
depreciation that is awarded as an added incentive for small businesses
that need to purchase more assets, specifically equipment. As the value
of equipment depreciates immediately once it is placed in service the
bonus depreciation deductible will be used the first year the equipment
is put to use.

The burden of proof is the responsibility of the tax payer to
keep accurate records in order to substantiate any information and
statements provided on their tax return. Should any tax matters be
brought before the courts and data is required then it is up to the tax
payer to provide the proper documentation (W2s, receipts, bills,
cancelled checks, expenses) as evidence.

This is also known as forgiven debt, debt cancellation or
cancellation of debt. If a lender or financial institution has cancelled
a taxpayers debt wiping out their financial obligation then that amount
of debt that was forgiven becomes taxable as income and must be
reported as such. When reporting the amount on the tax return it would
be documented as cancellation-of-debt income.

These major expenses also known as a capex that may incur due to
the complete and permanent betterment in a material asset that may be a
tangible property. They enhance the viable taxation of the property. An
example of this would be a home improvement such as an addition.

If you purchased a capital asset for investment purposes and
later sold it at a loss, you may deduct all or a portion of your capital
loss. You may not deduct any losses from a capital asset purchased for
personal use.

If any part of a capital loss is not used as a deductible over
the course of the current year then it can be carried over into future
tax years indefinitely. Capital losses can be used to offset capital
gains up to the limit of $3000. Any losses in excess of the $3000
restriction will be the capital loss that carries over.

If some expenditure is found to be helpful for a period longer
than one fiscal year then it is viable to be capitalized. These items
are not deductible in the current expenses and they are registered as
having long term lifespans in order to spread out the costs so not to
impact any revenue negatively.

If the taxpayer fails to report their charitable donations as a
deduction in the current tax year due to the exceeding gross incomes,
then they may carry over the charitable contributions. The surplus is
managed into the next five tax years until it is consumed. These
deductions should not be in excess of 50 percent of your managed gross
income. This carryover also cannot be claimed by heirs should the
taxpayer pass away.

When a taxpayer makes a donation to a qualified charity they need
to maintain a registered written communication, bank receipt or bank
record (an invalid check) to report any contributions that are being
made, irrespective of the amount. The donations exceeding $250 should be
registered and written in accordance with the qualified charity.

You may be able to claim the credit if you pay someone to care
for your child under age 13 so that you can work or look for work. For
more information see IRS Publication 503, Child and Dependent Care
Expenses.

You may be able to take this credit on your tax return for each
of your children under age 17. If you do not benefit from the full
amount of the Child Tax Credit, you may be eligible for the Additional
Child Tax Credit. The Additional Child Tax Credit is a refundable credit
and may give you a refund even if you do not owe any tax. For more
information see IRS Publication 972, Child Tax Credit.

This is one of the dependency tests that has been formulated by
the IRS to guarantee that a person can be claimed as a dependent to
qualify for exemption. Qualified adopted children are given certain
exemptions and liberties. However the qualifying person should be a
resident of United States, they may be a United States resident alien,
national citizen of United States or may have been a citizen of Mexico
or Canada for part of the tax year.

Class life is defined as the specific period of time in which the
utilization of a tangible property asset is established according to
the IRS asset types and it depends on the range of class asset
devaluation such as the General Depreciation System or the Alternative
Depreciation System.

There are two tax credits available that can be used to offset
the expense of getting a higher education. A qualified student can get a
$2,500 credit with the American Opportunity Tax Credit which is
accessible for the initial four years of postsecondary instruction at a
qualifying professional school or college depending upon one's adjusted
gross income. There is also a credit that can be used up to $2,000 per
year for continuing education called the Lifetime Learning Credit. This
credit is also only available depending upon the taxpayer's adjusted
gross income. You can guarantee an American Opportunity credit for every
qualifying understudy yet only one Lifetime Learning credit can be
asserted every year. These credits cannot be combined for use.

As determined by Executive Order from the President of the United
States, a combat zone is the geographical location where it has been
designated that U.S. Armed Forces have engaged in warfare and were in
imminent danger for a specified period of time. Serving in a combat zone
qualifies military personnel to tax benefits.

Community income is the sum of money generated collectively by
the taxpaying individuals living in community property states. It is
basically the wages they earned. Any properties owned by a spouse, in
addition to all incomes, belongs equally to both partners that are
married.

It is the property that is owned by a married couple jointly and
is divided if they get divorced. Death and annulment can also result in
the division of the property unless there is some other proof to the
contrary.

Generally, this is money that is given from an employer to an
employee as wages or a salary. This can also be termed as commissions,
tips, bonuses, or professional fees. The income or allowances from
self-employment can also be termed as compensation.

Apart from income that a taxpayer physically receives, this is
the income that has been credited and made available to the taxpayer
without any limitations. This can also refer to the gross income of the
taxpayer that is liable for income tax payments.

A tax credit is not like a tax deduction or tax exemption which
can reduce the taxable income. Tax credits can reduce the amount of
taxpayer liability, reducing what is owed at the end of the tax year.
Credits can be utilized in the form of earned income for low-income
taxpayers, child care expenditures (for qualifying children) as well as
expenses used for higher education.

This savings account is used to pay qualified educational
expenses at an eligible educational institution. Contributions are not
deductible, however, qualified distributions generally are tax-free. For
more information see IRS Publication 970, Tax Benefits for Education.

Damages are of many types. In some legal judicial trials,
damages are paid and awarded to the side, which bears some type of
injury or some kind of loss. If the awarded money is used for medical
treatment or medical care then it will not be taxed.

It is the date at which the something is traded, exchanged or
been made available, this may be a sum of money or some other financial
instrument. This date is also used in determining the exchange rate for
monies that may have been converted to U.S. dollars from a foreign
currency. Money is awarded to the taxpayer according to this date.

Deductions are the sum of amounts that taxpaying individuals can
exclude from their earnings (gross income). Deductions can become
available due to some expenditures that taxpayers may have incurred
during the tax year. These deductions can vary from region to region
placing them under varying tax codes. Deductions can also lower the
tax-expense obligations of the tax-paying individual. When filing the
taxpayer may choose the standard deduction, otherwise their deduction
will need to be itemized. Itemized deductions may include such things as
medical expenses, dental expenses, home mortgage interest, investment
interest, charitable contributions, and casualty and theft losses.

A retirement plan providing benefits for the employee that is
being sponsored by the employer. Employees benefit from this plan in
terms of certain parameters like salary, the total term dates of
service, and even their age. Upon the withdrawal of specific benefits,
some particular limitations and restrictions may be used as penalties
for the employee. This is usually defined as a traditional pension plan.

Defined contribution plan is one in which the employee along with
the employer contribute together to the employee's retirement plan.
Contribution plan is the account that individually belongs to the
employee and its benefits are defined by the specifically contributed
sum of money. These monies will not be subject to taxation until
distribution. The plan's value may fluctuate due to changes in
contributions or the investment performance. These types of plans can be
defined as profit-sharing, stock ownership or even a 401(k).

If you have a relative such as a child and if you paid more than
half their support for the income year, you can probably claim them as a
dependent.

Alternative definition

A very simplified definition of a dependent is someone who is given financial support (e.g. a child or elderly parent).

If you provide all the financial support for your child, that child is probably your dependent.

If your parent (or someone else) provides all of your financial
support, you are probably that person's dependent. Generally, if any
relative of yours paid for more than half your support for the income
year, they probably are claiming you as a dependent on their tax return.
If you made more than $12,000 in 2018 or were older than 24 at the end of 2018, you probably cannot be claimed as somebody else's dependent.

The salary, tips and commissions that you earn against personal
services you offer to anyone. It is different from your unearned income
which is generated without your effort like dividends and interests.

An amount of money that you can claim on your tax return provided
that your gross income after making necessary adjustments is below a
certain level. EIC shall override your income tax bill and may result in
refund of leftover credit. The dependency variables to qualify for this
credit are the level of your income and number of qualifying children
you are claiming.

The EITC is a benefit for certain people who work and have earned
income from wages, self-employment or farming. EITC reduces the amount
of tax you owe and may also give you a refund. For more information see
IRS Publication 596, Earned Income Credit.

Any interest paid by a qualified student on a student loan from a
qualified source used for higher education (tuition, fees, books) may
be used as a tax deduction. A taxpayer may deduct up to the amount of
$2,500 in a given year even without itemizing their deductions. This can
also apply to a loan used for a spouse or dependent. The amount of the
deduction will be phased out dependent upon certain adjusted income
levels.

This is a relatively small deduction (limited to $250) claimed
directly on form 1040 as an adjustment to income for state-approved
school employees who held positions in classes ranging from kindergarten
level up through to grade 12. This deduction is used to offset expenses
incurred for classroom peripherals considered "ordinary and necessary"
by the IRS.

An electronic, online method for taxpayers to file their tax
returns to the IRS. According to IRS, you get the fastest possible
refund when you electronically e-file your tax return and choose direct
deposit in order to receive your refund. You will get your refund weeks
earlier when you e-file than when you file on paper.

An employee can request excludable amounts to be withdrawn as
elective deferrals from their pay and then be contributed into an
employer-sponsored retirement plan. These deferrals include all
deferrals that fall under SARSEP and SIMPLE IRA plan as well as a 401(k)
and a 403(b) and are also known as salary-deferrals and
salary-reduction contributions.

In order to claim any educational tax credits the person who
received the benefits of the qualified educational expenses needs to
meet specific requirements during that credited tax year. Each
educational credit has its own specific prerequisites pertaining to the
student.

This credit is awarded to taxpayers who own their own home and
have invested in alternate energy sources, such as solar electricity
equipment, solar hot water heaters, and wind turbines in order to make
their home more energy-efficient.

Unfortunately, estimated tax payments to the IRS cannot be made
through our company. Nor does our program generate estimated tax payment
vouchers.

However, when preparing your tax return, our program has
provisions in the Expenses section for filers to enter the estimated tax
payments for both Federal and state (where applicable) that were made
during the year.

Every year there is a set limit to how much social security tax
can be withheld, for the individual. If there is an excess over this set
limit that is withheld then the individual needs to report the excess
on their Form 1040.

Various forms of qualified income that do not need to be included
into the taxpayer's gross income is then tax exempt and referred to as
excludable income such as student financial assistance or combat pay.

Expensing is when business assets are deducted as immediate
expenses (operating costs) instead of a capital investment. Also known
as Section 179 deduction, the assets are depreciated over their useful
life.

A qualifying component needed to compute taxable income of a
taxpayer, that includes five categories which are single, married filing
separately, married filing jointly, qualifying widow or widower with
dependent child, or head of household.

A taxpayer has the option to choose from 5 different categories
that calculate their taxes or applicable credits. These categories are:
single, married filing joint, married filing separate, head of the
household and qualifying widow(er) with dependent child. These
qualifiers need to be understood in order to predetermine the proper
amount of deductions and the credits best suited for the taxpayer.

This option is also known as a flexible spending account, and it
allows an individual to be reimbursed for any medical expenditures
usually through an agreed upon arrangement with said individual's
employer. Taxes are not paid on any of the money deducted from the
employee's pay for their contribution into this account.

Form 1040 is used by U.S. citizens and residents to prepare their
annual income tax return. Based on the information provided, you'll
either owe additional taxes or be issued a refund. This form can be
filed online or by paper depending on your preference. Tax returns are
usually due on April 15th unless it falls on the weekend or a holiday.

If a creditor forgives $600 or more of your outstanding debt, you
may receive a Form 1099-C reflecting the cancelled amount. This amount
will be considered taxable income and must be reported on your tax
return.

Form 1099-MISC is used to report non-employee compensation. If
you're an independent contractor or freelancer, you'll receive one from
each person who paid at least $600 for your services during the year. A
1099-MISC can also include rent, royalties and other types of
miscellaneous income.

A W-4 is used to determine the how much federal taxes your
employer must withhold from your paycheck. It's in your best interest
to complete and submit a new W-4 to your employer whenever your personal
or financial situation changes. Having too much taxes withheld will
result in you getting a refund at tax time. On the other hand, not
withholding enough will cause you to owe money.

A W-2 is used to report your wages and taxes withheld for the
year. An employer must issue a W-2 if an employee earned at least $600
or had taxes withheld from any amount of income. This information is
then used to prepare a tax return if you meet the filing requirements.
All W-2's must be issued to employees no later than January 31st.

A customized informal agreement between two parties (broker and
dealer) that allows for deliverance of property at a specified date for a
certain price where all aspects of the agreement were already decided
upon.

A student who was enrolled in a school, or an on-farm course at
an institute for a period of at least 5 months or courses that the
qualifying school would consider full-time status. An institution with a
regular teaching staff, sufficient courses offering and a student body
such as a technical, grade or mechanical school can be defined as a
qualifying school.

A contractual agreement where two parties acknowledge an exchange
in the buying or selling of assets such as commodities or shares at a
pre-decided price at a future date. This may also be referred to as a
Commodity future.

This is a federal tax imposed on an individual giving an item of
value to another individual without the receiving person being obligated
to pay the full value for the gift. The annual gift tax exclusion
amount is $14,000.

This is a value added to an established business entity that is
currently in the process of earning a profit. This excess value is in
addition to the sum of the market value of the company's assets and is
recorded for tax purposes as the firm's goodwill.

In order for a relative to qualify as a potential dependent they
must pass the dependency tests. One of these tests is applicable only to
a potential dependent over the age of 18 or a full-time student over 23
and is called the gross income test. The potential dependent in
question may earn an annual gross income under the limit of $12,000
provided this income is not from a disability source.

This tax term has to do with a business entity. Any taxpayers who
produce or supply goods and services to consumers need to report their
gross receipts for that tax year. It is the sum of all business
activities that generated revenue without costs, expenses or deductions
factored in.

Dependent upon the number of credit hours a student is enrolled
may qualify them for tax benefits or loans. Any students who are
enrolled in 6 - 8 credits hours will be considered a half-time student
for that semester according to the requirements of the respective
educational institution.

A tax-exempt account used to pay or reimburse certain medical expenses you incur.

You must be covered under a high deductible health plan (HDHP)
and have no other health coverage except permitted coverage. If you were
an eligible individual on December 1st, you are considered to be
eligible for the entire year.

As specified in the U.S. tax code, this is the excess amount of
interest earned on investments qualifying as earned income that has been
subjected to a gross withholding tax higher than 5% which has been
levied by a foreign country.

Highly-paid individuals are defined as people earning more than
$120,000 (during tax filing year) or having a 5% share as an owner in a
company. Due to special anti-discrimination rules, they are limited with
regard to their retirement plan contributions. Their annual
contributions to their individual plan may be returned at the end of the
year rendering it taxable if a sufficient amount of lower-paid
employees haven't contributed into the same company retirement savings
plan.

When there is a non-deductible loss instead of a profit while
doing a regular activity for enjoyment in your leisure time. If the
activity generates a profit then this rule will determine whether it is
to be considered a hobby or a business. For example, if the hobby earns a
profitable income for three out of five years then it can be treated as
a business and then the two years of loss can be realized now that an
actual business activity can be proven. Tax deductions under this rule
are only viable when expenditures on the hobby turned business do not
supersede the earnings.

This is the time period that needs to be determined in order to
calculate the tax treatment of capital gains and losses. For tax
purposes, the holding period begins on the day after an asset is
purchased and ends on the day that the asset is sold. These dates serve
to classify whether the asset gain or loss is short-term or long-term.

Also known as a "second mortgage," this is a consumer loan with
which the amount is based upon the difference between the current market
value of the home in question and the homeowner's remaining home
equity. This type of loan is secured by a second mortgage which allows
the home owner to borrow against the equity of their home as the loan's
collateral.

These are deductible expenses for individuals who have dedicated
part of their home residence for business operations and devote a great
deal of time generating business income from their home office. Some of
the expenses that may be eligible for deduction could be a portion of
the utilities, rent, mortgage interest or property taxes while expenses
such phone lines, computer equipment and supplies could be fully
deducted.

A taxpayer filing as a single individual can enjoy a tax free
profit of up to $250,000, if you have lived in, or owned a house for a
period of at least two years leading to the sale of the home. This
particular tax break can be availed once every two-year-period. For
those filing jointly as a married couple can enjoy tax-free profit of up
to $500,000. A widowed spouse who sells their home within two years of
the death of their loved one is also eligible for this married filing
jointly exclusion.

Military pay earned while the service person is hospitalized is
excluded from taxable income if that individual is hospitalized for a
period of not more than five years, abroad or in the U.S. The military
personnel should have been wounded or injured while serving on active
duty in a qualified combat zone in order to qualify for this benefit.

Any individual who works to earn an income or provides paid
services within the residence of a taxpayer is considered a household
employee. More common examples of this would be babysitters, nannies and
housekeepers who cook, clean and care for a dependent. The taxpayer who
pays the household employee is responsible for the payment of a "Nanny
Tax" which can include Social Security, Medicare and even Unemployment
depending on the level of income paid to their employee.

Also referred to as a "home improvement," this can encompass any
addition or alteration to the building structure of a living residence
or even maintenance and repairs which can include the yard and outdoor
structures as long as it adds a clear benefit or value to the property.

This refers to an estimated interest rate that is used by the IRS
in order to reflect a more accurate current market value and to
estimate a reasonable accounting of the rate of earnings. Once this is
established then the interest accrued and earned by the taxpayer can be
recorded for tax purposes.

This is one of two types of options offered by employers to
employees giving them the right to purchase shares of the company stock
at a fixed price below the market rate for a defined amount of time.
However, tax is not imposed on the amount of difference between paid
price and market value of stock. This phenomenon is termed as a "spread"
or "bargain element" for regular income tax purposes. When the stock is
being sold, tax has to be paid on it. Spread is also taxed the
following year, for other minimum tax purposes.

Be aware that the IRS has a broad interpretation of what's
includable into a taxpayers' gross income. The tax code requires
taxpayers to report all income from any and every possible source
including from other countries outside the U.S. Some lesser known
examples of these are awards, gambling proceeds, side jobs, exchanges of
goods and services and so on.

Also known as a government levy, an income tax is a tax that is
required of the taxpayer as prescribed by the government under the tax
code. The business entities and the individuals must report an
income-tax return in order to ensure if they are qualified for refunds
or if there may be taxes due at their ends.

Income taxes are the main source of income for the government
that it in turn uses to support many public agencies, utilities and
programs. All U.S. taxpayers (individuals and entities) are responsible
to report their income taxes under personal income tax and corporate
income taxes respectively. All tax responsibilities are calculated upon
the salaries, wages, and commissions termed as earned income as well as
interest and dividends that are known as unearned income.

For tax purposes, it is important for business owners to
determine whether or not someone who provides goods or services falls
under the status of an employee or an independent contractor. This may
depend upon the temporary or permanent nature of the work as well as
other considerations such as equipment, materials, hours and benefits of
employment. An independent contractor is self-employed (ineligible for
benefits) and their work is defined by the contract by which they
control the means and method to fulfill the obligations of the
agreement.

Indexing provides a proactive method that adjusts taxes, wages
and other rates to a weighted annual average of consumer pricing in
order to retain purchasing power and avoid the higher taxation that can
be brought about by the effects of a period of inflation.

Also referred to as a "Solo 401(k)" or "Self-employed 401(k),"
this is a qualified retirement savings plan for U.S. citizens intended
for the use of employers owning a business without a full-time employee
or a staff of employees.

The IRS issues these identification numbers to help individuals
without a Social Security Number to comply with the U.S. tax laws. This
ID number allows for efficient tax processing and payments for those
ineligible for Social Security Numbers from the Social Security
Administration.

A taxpayer is considered an injured spouse if they filed a joint
tax return and their share of the refund is expected to be applied
against their spouse's child and/or spousal support payments, past-due
federal debts or state taxes. When a joint return is filed the tax ID
number for the spouse with the liability can trigger an offset affecting
the entire refund. The taxpayer who feels they may qualify for an
injured spouse allocation must apply for the exception immediately upon
awareness of the obligation and file a federal form 8379.

Not to be confused with the above injured spouse exception, this
rule is designed to protect married or recently divorced taxpayers from
wrongfully incurred tax liabilities due to evasive or dishonest
financial behavior conducted by their spouse or former spouse who they
filed jointly with. It is the responsibility of the innocent spouse to
prove that the error or fraud was committed by the other spouse using
the appropriate documentation. The innocent spouse also needs to prove
that they were unaware of any fraudulent activity. The innocent spouse
must also apply for relief (form 8857) within two years after the date
that the IRS has begun the collection process.

An extension is granted on a purchase made for a gain to future
regulated annual payments in the successive tax years. The first loan
payment must be scheduled immediately after the close of the tax year in
which the purchase was made.

Also referred to as "incorporeal property," these are items of
valuable worth that are not physical in nature but their ownership may
be purchased or transferred. Some examples of these items are
copyrights, patents, trademarks, computer software and goodwill.

Interest is basically a charge for borrowing money, usually a
percentage of the amount borrowed. If you deposited money in a savings
account or purchased a T-bill or savings bond, you were actually lending
your bank or Uncle Sam some money, and you probably received interest
in return. Interest income is taxable and needs to be reported as
ordinary income.

Established in 1862 by President Lincoln, the Internal Revenue
Service is a government agency that is responsible for collecting taxes
and the administration of the internal revenue tax code. Under the
department of treasury of the United States federal government, IRS is a
revenue service wing that has also overseen various benefit programs.

There is a 10 % penalty that is imposed on the amount that is
withdrawn from a traditional IRA by taxpayers under the age of 59 years
and six months. However, if the money withdrawn from the IRA is used by
the taxpayer to buy a first home for themselves or to buy the first home
of a qualified family member then the penalty is waived up to the
amount of $10,000.

If a taxpayer makes an early withdrawal (under the age of 59.5
years) from a traditional IRA in order to pay higher education expenses,
then the 10% penalty is not imposed at all. The amount withdrawn for
their continued education will be subject to taxation.

When a taxpayer uses the tax software of an Authorized e-file
provider, such as ezTaxReturn, in order to submit a tax return via the
internet. E-filing gives U.S. taxpayers the edge of getting their
refunds much faster as compared to filing a request on paper. Especially
if e-file is used and then direct deposit is chosen to receive the
refund. E-filing, also referred to as efiling, is not only a faster way
to do your taxes and receive your refund but it is also a more accurate
and secure process.

Also known as "job-related continuing education and training" and
"work-related education." This is education that is required for a
current trade or business in order to maintain present and ongoing
employment. The expenses incurred by the taxpayer for this education is
tax deductible. Various courses that involve improving skill sets or
personal development may also be qualified as deductible.

This is a state and local income tax that is required of
traveling professionals who are required to work in multiple states,
especially athletes and musicians. These taxes are erratic in their
enforcement and can impose an unrealistic burden upon the professionals
involved.

This is a filing status on a U.S. income tax return that is
provided for the benefit of a married couple who prefer to file with a
combined tax obligation. When this status is checked then the two people
filing will not be charged individually and their united income will be
viewed as a whole. This is a status that applies to married couples who
are living together, couples who are separated but not divorced, also
to widowers that did not yet re-marry.

The joint return test is one of the dependency tests that is
administered by the IRS. The purpose of the test is to ensure that the
qualifying taxpayer being claimed by another qualifying taxpayer is
accurate and whether or not the couple filing qualify to file a joint
return. This is to establish that neither of the two individuals filing
jointly be claimed as a dependent on any other tax return. There are a
couple of exceptions to this qualification.

When you serve jury duty, you usually get paid, and this income
is taxable. If you are getting paid by your employer for the time you
are out, your employer may require you to pay him or her the income you
received as jury duty pay.

This is a tax deferred retirement plan that is available to
self-employed individuals such as entrepreneurs and business holders,
that is usually set up as a defined-contribution plan but can also be a
defined-benefit plan. This could also be known as an "H.R. 10 plan."

Also known as "TINs for tots," and "Enumeration program," refers
to cards issued to children that are being claimed as dependents due to
the fact that U.S. taxpayers need a social security number for all
dependents being claimed over the age of 5 years. The numbers issued on
the cards are to be used by the parents of the claimed child when filing
their return. In the scenario where a dependent child is born near the
end of the year and the Social Security number has not been received by
the parent(s), IRS rules dictate that the taxpaying parents should delay
filing and request an extension. Their tax bill will be hiked if you do
not put in a number of the claimed dependent and this is enforced to
halt the claiming of fake dependents.

Members of the U.S. Armed Forces who have been honorably
discharged or separated from active duty due to medical reasons and
receive severance payments will be taxed on their payments as wages
unless there is a letter of determination sent from Veterans Affairs
(VA) stating that the veteran qualifies for their severance pay due to
their medical disability. If there is a letter of determination then the
severance pay will not be subject to taxation.

Also known as a "1031 exchange," this is a transaction which can
be the tax deferred exchange of a real estate investment property for a
similar one or even one comparable business entity for another. As long
as similar assets are involved in the exchange (or exchanges) with
various considerations met and a form 8824 has been filed with the IRS
then any tax on the profit will be deferred until consequent property is
sold.

Property that is similar in its characteristic to another
property. Their similar feature is their nature and not their relative
quality. If they are considered to be the same type, such as two vacant
land plots or two pieces of residential real estate then the grade or
quality of the property is irrelevant.

This is a United States-specific non-complex flexible business
structure that allows pass-through taxes like a partnership, liability
limited to the business entity itself not the owners or investors, and
legal protection for personal assets, all in the form of a private
limited company. Rules in Regulations section 301.7701-3 are to be
applied in the case of an LLC being classified for federal income tax
purposes as a corporation, a partnership, or as any entity disregarded
as one separate from the owner.

This is a business model that has more than one owner but unlike a
General Partnership it offers its owners limited personal liability for
the debts of the business entity according to state limited liability
partnership laws. Each individual is responsible for their own debts,
acts and omissions, not for the LLP or anyone else.

Also known as "exchange-traded options," this is an option that
can be bought or sold on a qualified registered board/exchange with
their own exercise prices and expiration dates which are subjected to
varying exchange rules and terms.

A property which is depreciable in nature and is placed on a list
for scrutiny for the IRS, by Congress. These things include all items
which you intermingle in usage with personal and business use like a
car, telephone, computer, etc. However if the item is solely designated
for either business or personal use, it is not listed in the "Listed
property". If business use is under 50 percent, the item is not under
scrutiny.

Long-term care insurance is a way to help finance long-term care
which is the type of care one needs when they can no longer perform
everyday tasks. Long-term care can span many years and become very
expensive quickly. The amount of money paid for this kind of insurance
is called a premium. The taxpayer can deduct the premiums paid for long
term care insurance as a medical expense with the amount of annual
deduction depending upon their age.

This is a one-time payment made from the entirety of a plan
participant's balance from their employer's qualified plan such as a
pension, stock bonus or profit-sharing plans. However, some
prerequisites must be met to be eligible as a lump sum distribution.

This is the Modified Accelerated Cost Recovery System which is
the current method that is used to calculate a taxpayer's depreciation
deduction in the U.S. The capitalized cost of tangible assets is
recovered over a specified asset life span by annual deductions
accounting for the depreciation. This system allows for greater
accelerated depreciation over longer periods of time.

The marginal tax rate is the defined amount of tax that is
imposed on a taxpayer according to their particular income level and
filing status with the goal of creating a tax system that treats tax
payers fairly based upon their level of earnings.

This is the difference in value between the stated redemption at
maturity pricing of a bond (selling value) compared to its purchase
price. This difference impacts the taxpayer because their tax obligation
can differ significantly based upon when the bond was sold and whether
or not the bond is taxable.

This is the filing status used by a couple who are lawfully
declared married before the end of the tax year and choose to pool their
income and report it on a single tax return so that they can enjoy
different tax benefits like joint credits and deductions.

This is a type of limited partnership that has nearly all (90%)
of its cash flow acquired from the public trading of real estate,
natural resources and commodities. This particular type of partnership
combines the tax advantages of a limited partnership with the liquidity
of a publicly traded company. The income from this type of partnership
is considered investment income rather than passive income, but the
losses are considered passive.

This is a tax law used to determine the difference between a
passive investment in a business or being physically active in a
business. A taxpayer must pass one of seven material participation tests
in order to identify the amount of their participation in either a
business enterprise or a trade during the tax year. If the taxpayer
materially devoted an excess of 500 hours, then they would qualify as
having non-passive losses to report.

This is a tax-exempted health savings account developed for the
self-employed and the employees of a small business in order to put
aside money in the event of unforeseen medical costs. A tax deduction
may be claimed for the contributions the taxpayer has made into this
type of an account.

Tax-exempt accounts used to pay or reimburse certain medical expenses you incur.

You must be an employee of a small employer or be self-employed.
You (or your spouse) must be covered under a high deductible health plan
(HDHP) and have no other coverage except permitted coverage. You must
be an eligible individual on the first day of a month to take an Archer
MSA deduction for that month (to be eligible for that month).

This is also known as "Disability Severance Pay," and is
available to those service members of the military who are discharged
due to medical reasons. Depending upon the type of discharge they may or
may not be entitled to the disability pay benefit.

This is a payroll tax imposed at a flat rate upon wages,
salaries, business or farming income that has been earned by the
self-employed. The current flat rate is 2.9% of which, usually the
employer pays 1.45% and the taxpayer has the other 1.45% deducted
automatically from their paycheck. Self-employed taxpayers are
responsible for the entire rate. This is a portion of the combination of
the Medicare Tax and the Social Security that pays for one's Medicare.

This is a dependency test which requires that the dependent being
claimed by the taxpayer lived with them for the entire tax year and is
related in one of multiple qualifying ways such as biological child,
foster child, stepchild, adopted child, grandchild, niece, nephew,
sibling, etcetera.

This is a tax rule that treats depreciable property as if it were
placed into service in the middle of the month that it was first made
available to be put into use so that depreciation can be recorded for
half of the month.

This is a tax rule that only applies to businesses who have
purchased more than 40% of their depreciable assets during the last
quarter of the tax year (the last three months). Utilizing this tax
rule, the deduction would then be lower than the normally used
"half-year convention" principle.

This is the Adjusted Gross Income of the taxpayer's household
which is then modified by including more deductions such as education
expenses, rental losses, IRA contributions, passive income or passive
losses which can greatly impact their overall tax return.

These are expenses that are incurred when a taxpayer and their
family needs to relocate for a new job or there is a transfer of
location for their current position which also requires them to move. If
the circumstances of these expenses qualify as acceptable
prerequisites, then they may be tax deductible. Beginning in 2018, this deduction is only available to members of the military who are on active duty.

This is when multiple taxpayers agree to provide joint support
for the same single dependent. This type of agreement will then allow
the taxpayers to exchange the right to claim this dependent on their tax
returns during different tax years.

This is when a taxpayer receives income during the year from
investment assets such as stocks, bonds, mutual funds and loans which
can then subject the taxpayer to the 3.8 percent Net Income Investment
Tax depending upon their levels of income.

This is when a traditional IRA has been funded by the
contributions of after-tax dollars. A taxpayer who contributes to a
non-deductible IRA is required to keep a record of their tax basis in
order to properly determine the taxes to be imposed upon any of their
IRA withdrawals.

This is an agreement between a buyer and seller that involves an
agreed upon price and date but pertains to physical commodities or
anything other than a common stock, such as fixed income securities,
real estate or currencies. Debt options, commodity futures options,
currency options and broad-based stock index options are termed as an
equity option.

Non passive income is what a taxpayer earns when they physically
participate in the activity. Basically, this includes any type of
income, such as earnings from salaries, wages, commissions and
dividends, along with the annuities or royalties.

This term refers to a type of agreement that is elective or
non-elective between the employee and the employer regarding the subject
of the paying of compensation to the employee or independent contractor
at a specified time in the future.

A Non-Refundable Tax Credit is a tax credit that can only reduce the amount of tax owed to zero.

It is a tax credit which is applied to the amount of tax owed by
the taxpayer after all deductions are made from his or her taxable
income and will not result in the taxpayer receiving a refund based on
this particular credit.

As a simplified example, if you end up with a tax burden of $500
and you have a non-refundable credit of $600, this would result in no
tax owed, but you would also not get a refund. If the same situation had
a refundable credit instead, you would end up with a $100 refund.

If your tax liability is reduced to $0 before a non-refundable
credit is calculated, then you would not receive that credit since it
would have no effect on your tax liability.

Also known as a "market maker" or "specialist," this is an
individual who is registered with a relevant national securities
exchange and is different from a "trader" because buying and selling
securities is part of their regular business dealings. A dealer is also
different than a "broker" because they act as a principal in trading for
its own account unlike a broker acting as an agent in executing orders
for their clients.

This is a bond that has been issued at a price that is below face
value. These types of discounts are regarded to be a type of interest
so tax matters can quickly become convoluted. When these bonds are given
discounts, some part of it must be reported as taxable interest income.

These are reasonable expenses that are incurred when performing
volunteer work for a qualified charitable organization that provides an
actual benefit to the organization. These expenses must be substantiated
as a contribution and clearly show a connection to the charitable
organization such as the incidental expenses of phone bills, stamps,
stationery, gas and oil incurred in the volunteer work.

A type of business entity that is owned and/or operated by two or
more individuals. The partners enter into an agreement relationship to
share and invest their capitals in terms of material inputs like, money,
labor, property etc. Therefore the profits from the business is then
also divided accordingly.

This is one of two types of passive activity. One is where the
taxpayer does not engage physically or materially in any activity within
a trade or business. The other involves passive activity in rental
activities, even if the taxpayer physically participated (not applicable
to real estate professionals).

This is an economic loss that happens within an investment placed
into a trade or business and the investment was made by an individual
who does not engage in any physical or material activity within the
organization.

These are a set of guidelines that were created in order to
prevent the use of passive losses as an offset against earned or
ordinary income. These rules are contingent upon the physical or
material participation of the taxpayer who is claiming the financial
loss.

This refers to all moveable types of property as opposed to real
estate property such as building structures or land. Personal property
includes items like mechanical machinery, office equipment and wooden or
metallic furniture.

For this test, a taxpayer needs to be materially and physically
present in the residence of a foreign country in order to qualify for
the foreign earned income exclusion. The taxpayer must have resided in
the residence abroad for a time period of at least 330 full days during
the course of the tax year.

In order to accurately determine depreciation on an asset the
owner of the asset needs to document the start and end dates of its
service use. The term "Placed in service" is a reference to the start
date. The date of purchase may be used but it is not always the same
date as when the asset was put to use. The asset is something that is
available for some particular purpose that may be utilized in a business
or trade providing value to the organization in the production of
income.

These are also known as "origination points," "mortgage points,"
or "discount points," and references the paying of the closing mortgage
fees in exchange for a reduced interest rate in the obtaining of a home
mortgage. This is a common home mortgage practice in the United States.
These points are generally formulated as being equal to 1 % of the total
value of the mortgage amount. Payments made for these points are
usually tax deductible.

This is one of the three main categories of income. Active,
passive and portfolio income. Portfolio income is earned from
investments, dividends, interest, royalties and capital gains not
passive investments or normal business activity.

This is an advanced level of education. In the United States this
refers to any education continued after graduating from high school
such as institutions that offer Certification, Associate's degrees,
Bachelor's degrees, Master's degrees or more.

These are items with rules applied to them that are constructed
to ensure that high-income taxpayers cannot use their participation in
specific enterprises for the purpose of avoiding paying more income tax.
These are usually types of tax-free income that may trigger the
alternative minimum tax such as private-activity municipal-bond
interests, qualifying exclusions for small business stock or other
intangible expenses declared by the taxpayer. If the amount seems
excessive then these preference items will be added to the amount of AMT
income and incur the additional flat rate.

There are two types of premature distributions or withdrawing
money from a company's retirement plan; one is the general withdrawal
under the age of 55. Second is the withdrawal from a traditional IRA
before your age of 59.5. In both of these, a 10 % early withdrawal
penalty is usually imposed.

This is an option to help publicly fund the federal Presidential
election. This was formulated to lessen the burden of the candidate by
minimizing his dependence on big contributions. It makes him stand on
firm grounds in the general elections. By checking the Yes box, you
donate $3 to this fund.

Generally, if a taxpayer manages to win a lottery or has been
given a prize or award, a tax is then imposed on it. A non-cash employee
award may be presented for recognition, retirement or length of service
and a non-cash gift for sympathy, participation or an accomplishment
may qualify as tax exempt depending upon the type of gift and the value
of the gift.

This is also known as "master limited partnerships or MLP," and
is a limited partnership. It can be run by multiple general partners or
corporations. The partners provide the capital to fund the business
entity but play no role in the management of it.

It is the capital gain of the long term nature that is received
from the selling of a property which is held for more than five years
and is either sold or disposed before a specified date. The qualifying
gain needs to have a holding period of at least 5 years in order to be
taxed at the reduced rate of 18%.

These are the costs incurred by the taxpayer in order to further
their education by attending classes at an eligible educational
institution earning credits toward a degree program. Some of these
costs, such as tuition and enrollment fees may be claimed on a tax
return to qualify for a credit. Below is a list of ways that a taxpayer
may qualify for the expenses to be claimed.

American opportunity credit. Tuition, student activity fees, books and supplies may be claimed.

Coverdell Education Savings Account (ESA). Enrollment,
contributions to qualified tuition program and some specialized expenses
may be claimed.

Education savings bond program. Enrollment, contributions
to qualified tuition program and some specialized expenses may be
claimed.

IRA, early distributions from. Tuition, student activity
fees, books, supplies, special needs services and even limited room and
board may be claimed.

Qualified Tuition Program (QTP). Tuition, student
activity fees, books, supplies, special needs services and even limited
room and board may be claimed.

Scholarships and fellowships. Tuition, student activity fees, books and supplies may be claimed.

Student loan interest deduction. This includes the total
amount of a student's expenditures while attending an accredited and
recognized educational institute. This may even include limited room and
board.

A taxpayer claiming a dependent for tax purposes needs to ensure
that the child fulfills the IRS requirements as a qualifying child. To
fulfill these requirements the child needs to satisfy multiple tests and
additional rules such as relationship, residence, age, support,
nationality and filing status. Some general details are listed below.

Child by blood or adoption, stepchild, foster child, sibling, stepsibling, or even a descendant of these.

Same residence as taxpayer for more than 6 months with exceptions.

They didn't give you more than half of the income he/she gained throughout the year.

At years end, they must be under 19 years of age or 24 years of age for full-time student.

For a person to be qualified as a relative for tax purposes, they
must meet the IRS requirements in order to qualify as a dependent. They
do not necessarily need to be a blood relative. To fulfill these
requirements the individual needs to satisfy multiple tests such as
relationship, residence, gross income, support and filing status.

If your spouse passed away in the current or prior income year
and you have a dependent child who lived with you all year, you are
probably eligible to file as a Qualifying Widow(er) with Dependent
Child.

In most cases, if you file as a Qualifying Widow(er) you will pay
less in taxes than you would if you filed as Single or Head of
Household.

This is part of a U.S. employer-funded health benefit plan that
works as a plan to reimburse employees for out-of-pocket medical
expenses and may also be known as a "flexible spending account" or a
"salary reduction plan."

This is another one of the dependency tests that is used to
qualify whether or not a child can be claimed as a dependent by a
taxpayer. The child would need to be the taxpayers' biological child or
sibling, a blood relative, stepchild, foster child, half-brother or
half-sister, stepbrother, stepsister, or a descendant from any of the
previously mentioned.

An individual that is in some way connected to the taxpayer by
way of blood, marriage or even adoption. This could be a qualifying
descendant, child, grandchild, sibling, spouse, parent, step-parent,
half-brother, half-sister, or even an in-law.

A property that is being accurately utilized by a qualified
business entity strictly for business purposes under agreement for
rental payments that are reasonable but accrue no right to ownership or
equity can incur costs to the organization that can be used as a tax
deduction. These deductions are the expenses that are invested in the
rent as well as maintenance costs of the rented property.

A permanent resident in the country they currently reside in who
is not yet a citizen of that country. In the U.S., this individual must
possess a green card which serves as proof of their immigration process
and pass the Substantial Presence Test.

Also known as "letter stock" or "restricted securities," this is
defined as the stock a taxpayer usually has obtained for the sake of the
services rendered. It is non-transferable in nature and viable to the
risk of confiscation by the state or governing body unless specified
conditions have been met by the taxpayer.

Also known as "Saver's Tax Credit" or "Retirement Savings
Contribution Credit," this is a non-refundable tax credit that was
designed to encourage low income workers to save for their retirement by
contributing to a qualified retirement savings plan. The amount of this
particular credit can vary based upon the adjusted gross income of the
taxpayer and the size of their contribution. This credit phases out as
income rises. Ineligible people include taxpayers under 18 years of age,
full-time students and those claimed as a dependent on their parent's
returns.

When a taxpayer needs to move the funds from one retirement
savings plan into a different retirement savings plan without any tax
penalties, this is referred to as a "rollover." The transfer
distribution and the contribution both need to be reported and rollovers
may be limited to one per tax year. The complete transfer process must
be completed within the time period of 60 days.

This is another type of employer-sponsored retirement savings
plan that was created for people who may be in a higher tax bracket in
retirement by combining the features of the Roth IRA and a traditional
401k plan. This plan is funded with after-tax money but does not
restrict high-income investors.

This is an individual retirement savings plan that is very
similar to the traditional IRA. This plan allows an individual to set
aside specified annual income contributions that are not tax deductible.
However, earnings and qualified distributions after the age of 59.5 are
tax-free.

This is an indirect tax that is imposed on the purchase of goods
and services. Also referred to as a "consumption tax" the amount of tax
levied is defined by the laws of that particular jurisdiction of the
government. It's collected by the retailer and passed on to the
government.

If you received income for the sole purpose of attending an
educational institution (such as college), you probably received
scholarship or fellowship grants. Some or all of your scholarship or
fellowship grant may be taxable.

Scholarships are awards of financial aid awarded to students to
further their education. These awards based upon various criteria, which
usually reflect the values and purposes of the donor or founder of the
award.

Fellowships are an amount that is paid out in the form of a
grant to an individual for the purpose of continuing studies or
research. These are usually short term opportunities lasting from a few
months to several years. Fellowships are sponsored by a specific
association or organization seeking to expand leadership in their field.

A security futures contract is a legally binding agreement
between two parties to buy or sell a specific quantity of shares of an
individual stock or a narrow-based security index at a specified price,
on a specified date in the future.

The self-employed health insurance allows a person to reduce
his/her Adjusted Gross Income by the amount they pay in premiums on
medical insurance, dental insurance, and qualified long-term care
insurance for them self, their spouse, and their dependents.

If you are in business for yourself, or carry on a trade or
business as a sole proprietor or an independent contractor, you
generally would consider yourself a self-employed individual. You are an
independent contractor if the person for whom you perform services has
only the right to control or direct the result of your work, not what
will be done or how it will be done.

A form of taxes that self-employed business owners must pay based
on their net earnings from self-employment in order to cover their own
Social Security, Medicare, and Old Age Survivors and Disability
Insurance (OASDI) costs.

Taxable income earned from self-employment. Self-employed persons
are those who act as independent contractors, sole proprietors or
members of a partnership or limited liability company that would file a
1065 Form. Self-employed individuals are required to file an annual
return and pay estimated tax on a quarterly basis. These individuals
must pay self-employment tax and income tax.

Individuals who work for themselves are required to pay a self-employment tax. The rate is 15.3 percent and is split between Social Security and Medicare taxes. Social Security takes 12.4 percent and Medicare takes 2.9 percent.

This is a real estate agreement that can be used when the buyer
does not qualify for a traditional mortgage. As the term suggests, the
seller of the home becomes the lender for the financing. Instead of
utilizing a lending institution, the buyer and the seller enter into
terms agreed upon where the buyer makes monthly payments to the seller.
This type of agreement is also referred to as a "purchase-money
mortgage."

It is a retirement arrangement of the individual and it is
adopted by the business owners in order to provide the retirement
benefits for their employees and themselves. There are no additional
costs for the person who has no employees and is self-employed and the
contributions made are usually tax deductible.

A short sale is a sale of real estate in which the proceeds from
selling the property will fall short of the balance of debts secured by
liens against the property, and the property owner cannot afford to
repay the liens' full amount and where the lien holders agree to release
their lien upon the real estate.

A SIMPLE IRA plan (Savings Incentive Match Plan for Employees)
allows employees and employers to contribute to traditional IRAs set up
for employees. It is ideally suited as a start-up retirement savings
plan for small employers not currently sponsoring a retirement plan.

This is a state-sponsored tax that is imposed to discourage the
activities or the use of items that are considered dangerous, harmful or
just un-necessary such as gambling, alcohol, tobacco, candies, soft
drinks or drugs.

The IRS considers you to be single for the full year only if any of the following was true on December 31 of the tax season:

You were never married.

You were married, but got legally separated through a legal divorce or decree of separation maintenance.

You were widowed before January 1, of the tax year you are filing and did not remarry in that year.

Please know you are still considered married until you have legal
documents stating your divorce, or a decree of separation. This means
that if you were still going through your divorce/separation proceedings
on December 31, of the tax year, you were still legally married that
year.

An agency in charge of regulating and adhering to policies
related to social security benefits. The agency covers a wide range of
social security services, such as disability, retirement and survivors'
benefits. It was previously operating under the department of health and
human services.

If you receive monthly checks from the Social Security
Administration, you receive Social Security benefits. Depending upon
your filing status and your income level, your Social Security benefits
may be partially or fully taxable. All you need to do is enter your
total benefits, and we will calculate the taxable portion that needs to
be reported on your return.

This is the tax imposed on wages that are earned and is paid by
both employers and their workers in the form of payroll taxes or
self-employment taxes. The money collected by this tax is utilized in
the form of worker contributions gathered as capital to support the
operations of the social security program. The social security program
works as a financial safety net for older Americans by funding their
retirement and disability benefits.

If you had more than one employer and your total wages and
compensation were over the wage base limit for the year, the total
social security tax or social security equivalent for railroad
employers, Tier 1 Railroad Retirement Tax Act (RRTA) tax withheld may
have exceeded the maximum amount due for the tax year.

This is another type of individual retirement account that allows
the wage-earning spouse to contribute to their unemployed spouse's
retirement savings provided they filed jointly. The individual
contributing must have an earned income that is equal to or exceeds the
total IRA contributions.

This is a specified rate defined by the IRS which applies to
every mile that was driven by the taxpayer for the purposes of
employment, charity, medical or relocation. The total of this applied
rate may serve as a tax deduction.

Statutory employees may deduct business expenses and thereby
reduce their net taxable income reported on Form W-2. If you have
business expenses related to this income, you will have to file a
Schedule C. This is no problem. Our program will collect all of your
business expenses.

Also known as a "share", "equity" or "stock," this is a portion
in the ownership of a company which represents a claim on the company's
assets and earnings and this share of value can be traded, purchased or
sold as an personal investment.

An options purchasing strategy with which the investor holds a
position in both a call and put with the same strike price and
expiration date which allows the investor to make a profit no matter how
the pricing changes.

This is a form of depreciation used to determine the estimated
useful life of the asset that results in an equal distribution of
depreciation expenses over each year. Divide the estimated useful life
(in years) using the number 1 to arrive at the straight-line
depreciation rate.

These are the parts that are compiled by the building designer
which together result in the framework of a building structure. These
components are essential parts integrated into the permanent building
structural system serving a passive function such as walls, partitions,
floors, ceilings, tiling, paneling, windows, doors, sinks, bathtubs,
wiring and HVAC.

You may be able to deduct the interest you pay on a qualified
student loan. The deduction is claimed as an adjustment to income so you
do not need to itemize your deductions. For more information, see IRS
Publication 970.

This is a government program funded by the U.S. Treasury and
overseen by the Social Security Administration which grants allowances
to qualified low-income U.S. taxpayers with limited resources who may be
elderly, blind or disabled.

Also known as "Child Support," this consists of the monetary
award order made by the court according to the terms finalized in the
divorce decree. Generally, these monetary payments are made by the
noncustodial parent to the parent with the custody until the child
reaches the age of majority.

Also known as "Tangible personal property," this refers to
property which occupies physical space and can be perceived. From a tax
perspective, this is property that can be relocated unlike land or a
permanent building structure which are referred to as "real property."
Examples of tangible personal property could be vehicles, office
fixtures, jewelry, toys and sports equipment.

Basically, this is a scope of income levels that are taxed at a
specified, given rate per each range. For example, individuals earning
higher income levels will be taxed at a higher rate than individuals who
earn lower income levels. These brackets provide cessation points for
clear illustration to individual taxpayers for the tax rate they're
required to pay for their portions of income.

This is a reduction in a taxpayer's taxable income which is
usually brought about by the issue of expenses especially in the form of
costs incurred to earn additional income. Tax authorities allow tax
deductions to be removed from the taxpayer's adjusted gross income
before calculating their overall tax liability.

Not all interest income is taxable. If you own bonds issued by a
state or local government (these are called municipal bonds), this
interest income is not taxed at the federal level (but may be taxable in
your state).

This is money that is earned and is exempt from the liability of
taxation. Municipal bonds generate income in the form of interest which
is not subject to federal income taxes, it is also commonly exempt from
state and local income taxes.

This is the location or the general vicinity where the taxpayer
conducts their regular business activities which can impact their travel
deductions. This is not to be confused with the taxpayer's place of
residence.

This is the total amount of taxes that a taxpayer or an entity is
legally obligated to pay according to their finalized tax return based
upon their income and withholdings or as the result of a taxable event.

This is a process of a taxpayer or an entity fulfilling their tax
obligation by collecting all the required information and submitting
this information to the IRS in the form of a tax return. The process is
the preparation and this can be done by the taxpayer or with the help of
tax preparation software and online software as a service. ezTaxReturn
is one such software as a service website where the average American tax
payer can file their federal and state returns from any device in a
safe, secure manner with no math, no forms and no stress.

Money that needs to be remitted by the federal government to a
tax payer who has overpaid the IRS by submitting a larger tax payment
than what was owed. Tax rebates are calculated during the tax season.

The return of excess amounts of income tax that a taxpayer has
paid to the state or federal government throughout the past year. In
certain cases, taxpayers may even receive a refund if they owed no
taxes, because certain reported tax credits are fully refundable.
ezTaxReturn guarantees you will get the biggest possible refund when you
file with them.

Tax liabilities are considered and accounted for in a
standardized form that is provided by the tax authorities as an annual
statement of income. Taxpayers complete the form by reporting their
taxable income and the deductibles they're allowed. The tax authorities
then use the form to assess the taxpayer's liabilities.

This is a type of computer software that is developed in order to
assist business entities or tax paying individuals to prepare for and
file their finalized tax returns. It is done without paying any kind of
expense to any tax professionals. ezTaxReturn offers software as a
service so that there is nothing to install or download.

This is a time period which consists of 12 consecutive calendar
months used as an annual accounting period for reporting the income and
expenses of taxpayers. In the U.S., the calendar year is reported as
beginning January 1st and ending December 31st.

This is money earned and received by the taxpayer usually on a
regular basis from their employment or their investments which is
calculated to gross income or adjusted gross income less their
deductions and exemptions. The final annual amount of income is
calculated to figure the tax payer's tax obligation.

Taxes are the amount of money imposed on the persons and entities
that are enforced by the government that may be local government, it
might be regional or even national government. Taxes are imposed at a
specific rate on every entity usually in proportion to the value of the
income involved. These taxes are used by the government to fund public
works, facilities and services.

The Taxpayer Advocate Service (TAS) is your voice at the IRS.
Their job is to ensure that every taxpayer is treated fairly, and that
you know and understand your rights. They can offer you free help with
IRS problems that you can't resolve on your own.

This is when the taxpayer is required to perform services for
their employer at a location for a short-term or irregular basis. If the
period of their work at this location is less than one year then it is
considered a temporary work location. When a taxpayer is assigned to
work at one of these locations then they may be able to deduct their
travel expenses.

Also known as "term structure of interest rates" and "yield
curve", this is interest on an income from property that displays curved
shapes which illustrate the yields being offered as short-term,
medium-term and long-term rates so investors can quickly compare the
yields based upon market expectations.

If you work in a service profession (i.e. as a waiter, bartender,
doorman, etc.), a good portion of your income probably comes from
customer tips. As you might imagine, the government expects such tips to
be reported as regular taxable income.

Tip income should be included on your W-2 form (boxes 1, 16,
and/or 18 for federal, state, and local income respectively) from any
such job.

This is an individual retirement account which allows taxpayers
to save for retirement by contributing after tax or pre-tax dollars, and
which allows the savings to grow tax-deferred. It will be treated as
the current income with tax obligations when you make withdrawals after
retirement age.

Also known as a "trustee-to-trustee transfer," this is a tax-free
transaction due to its tax-free nature because the taxpayer never has
access to the money. The transfer of retirement assets must be reported
on federal income tax forms.

Travel expenses are the ordinary and necessary expenses of
traveling away from home for your business, profession, or job.
Generally, employees deduct these expenses using Form 2106 (PDF) or Form
2106-EZ (PDF) and on Form 1040, Schedule A. You cannot deduct expenses
that are lavish or extravagant or that are for personal purposes.

Also known as a "trust fund," this is comprised of financial
assets existing under terms dictated under the relationship between the
trustor and the trustee pertaining to the rights granted for ownership
and the benefit of the beneficiary as a third party. There can be either
a "Living Trust" while the trustor is alive or a "Testamentary Trust"
created through the will of a deceased person.

Also known as an "Education Credit," this is a reduction in tax
liability granted to qualifying students which is based upon the amount
of money spent for the tuition for higher education at a qualifying
educational institute.

U.S. savings bonds are securities issued by the U.S. Department
of Treasury. They are a virtually risk free investment offering a fixed
rate of interest over a period of time. Since they are government
issued, they are not subject to state or local income taxes. These
bonds are non-negotiable and cannot be easily transferred.

This is when the IRS determines that there has been a shortage in
the tax obligation of a taxpayer and imposes an additional payment
amount as a disciplinary measure onto the taxpayer's liability. Usually,
the majority of taxpayers avoid this penalty due to the fact that there
are many exceptions.

This is a place of residence that is not the primary residence of
the taxpayer and is usually considered a second home for recreational
purposes or even an investment property. The tax deductions will vary
greatly depending on the uses of this second home.

Also known as a "zombie bank account," this is usually a bank
account that may have lured customers in with a high interest rate but
quickly reduce the rates so that the account is earning almost no
interest.

This can also be a closed account that was reopened by the bank.
Many banks reserve the right to reopen closed accounts and are not
required to notify the customer.

If taxpayers have any issues with anything regarding a zombie
account, they should to contact the Consumer Financial Protection
Bureau.

Disclaimer:

These terms and their general explanations have been developed
and are provided with the sole intention to educate visitors to our site
with their understanding of tax terminology. These are not intended as
any kind of tax advice or as a substitute for professional tax
consultation. Definitions listed here may differ from other sources.
Please seek the assistance of a tax professional who understands your
specific needs and your particular circumstances before taking any
action that involves your personal information as well as your money,
tax situation, investments, or any of your professional, personal or
legal matters.

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